I'm Political Economy editor at Forbes, editor of RealClearMarkets.com, plus a senior economic advisor to Toreador Research & Trading. I have book on how the economy works, Popular Economics: What LeBron James, the Rolling Stones and Downton Abbey Can Teach You About Economics that is set for release in April of 2015. I have a weekly column on Mondays at Forbes.com.

Sorry Henry Blodget, But The Rich DO Create Nearly Every Job

About all the wholly ineffective regulation that followed the 1980s S&L debacle, it was once written that it amounted to an “Act of anger.” Politicians and regulators are always and everywhere fighting yesterday’s maladies, and as evidenced by the troubles in the still heavily regulated banking sector in 2008, the alleged “fixes” in the ‘90s were nothing of the sort.

The above sprung to mind when the SEC unleashed the obnoxious force of government on Henry Blodget in 2002. Blodget most notably rose to fame for making what was ultimately a very correct call about Amazon.com in the late ‘90s, but when Internet stocks collapsed in 2000 and 2001, what amounted to overdone anger led to Blodget being forced out of the securities industry after paying a large fine. Near as this writer could tell he didn’t do anything wrong, but thanks to an angry political class that was out for blood for capitalism working – very well – to starve bad technology ideas, Blodget was wrongly made the poster boy for all that was supposedly wrong with Wall Street.

Happily, Blodget didn’t disappear. Instead, he chose to reinvent himself perhaps not so ironically in the Internet space that initially made him famous. As the editor of the very popular website Business Insider, Blodget has created what is very much a go-to site for those interested in what’s going on in the world of business and the markets.

Recently Blodget penned a piece for readers in which he argued that contrary to popular opinion, the rich do not create jobs. A provocative statement to say the least, and wildly untrue. The rich do create jobs, by definition.

Indeed, as Joseph Schumpeter long ago observed, and his observation was a tautology, there are no entrepreneurs without capital. Taking Schumpeter’s basic insight even further, it’s stating the obvious to assert that there are no companies, and no jobs, without investment first. For anyone irrespective of ideology to deny the latter brings new meaning to willful blindness.

So once the obvious is accepted, that companies need investment in order to open for business and hire people, we then can ask where investment comes from. It comes from all of us who save and invest, but the rich, by virtue of being rich, have the most to invest. Investment is what creates jobs, rich people can claim the vast majority of investable wealth in this country, and because they can it’s another tautology to say that their savings and investment create the vast majority of jobs.

Blodget dismisses the commentary that says the rich would create even more jobs if they were taxed less. About that, he writes that “taxes on entrepreneurs and investors are already historically low, even after this year’s modest increases.” Blodget is correct that taxes are low relative to the rates that prevailed from the 1930s to mid-1980s, but in making the latter point, he misses the point.

No doubt it’s true that restlessly ambitious entrepreneurs of the Ted Turner, Steve Jobs, Jeff Bezos, and Mark Zuckerberg variety likely would not have been deterred by most any tax rate on income in starting CNN, Apple, Amazon, and Facebook. That much is true, but per the above, it misses the point. There are once again no companies and jobs without investment first, so when governments tax income and capital gains on investment at all, they’re logically reducing the amount of capital available for entrepreneurs to access.

Blodget’s error is in residing in the ‘seen.’ What he misses is the ‘unseen.’ As George Gilder has long pointed out, economic growth is about the ‘leap,’ or better yet, experimentation with new ideas. The latter requires investment, so rather than celebrate the ‘seen,’ we must consider the ‘unseen’ that Blodget does not; as in how many future Microsofts, Intels and Googles never were and never will be started at all thanks to governments taxing and borrowing away always limited capital so that they can consume it.

The above is important in light of what the rich do with their money. Blodget writes of customer demand for goods, and says the demand creates jobs, but as evidenced by how much wealth is in the hands of the tragically demonized 1 percent, it’s their demand that plays a major role in the health of job-creating companies created by the savings of the rich. More on this in a bit.

More to the point, the wealth that the rich don’t consume must go somewhere. Jeff Bezos has notably invested some of his disposable income not taxed away by the federal government into the Uber car service. Considering the ‘unseen’ yet again, we must ask how many life-enhancing services never saw the light of day thanks once again to government presuming for itself so much our capital through its taxing and borrowing powers.

Blodget goes on to write that “America’s middle class has been pummeled, in part, by tax policies that reward ‘the 1 percent’ at the expense of everyone else.” That’s interesting when we consider that the 1 percent account for 40 percent of federal revenues. It would be more realistic to say that it’s the 1 percent who are being pummeled, though that’s an article for another day.

What should be pointed out, however, is that a federal government that has no resources of its own is able to employ millions of Americans around the world thanks to an annual budget that has reached $3.5 trillion. What this tells us in light of how the rich account for the vast majority of government revenues is that the rich not only create most private sector jobs, but they also create most government jobs too.

It’s unknown, but it’s entirely possible that Blodget thinks the federal government should have a role when it comes to investing the wealth created in the private sector. That seems to be what he’s looking for given his desire to redistribute the wealth created by the wealthy. It says here that Blodget’s sanguine view of government as the wealth distributor is offensive, but he can (and does) point to rich entrepreneurs who would like for the federal government to tax them more.

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